SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Financing Module 19: FINANCING OPTIONS FOR RENEWABLE ENERGY AND ENERGY EFFICIENCY

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Module overview Point of view of banking and financing institutions and risks associated with renewable energy (RE) and energy efficiency (EE) projects What are different financing models for RE and EE projects Possible policies and incentives to increase involvement of banking institutions Examples in different developing countries

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Module aims Present different financing models that have been developed and tested for RE and EE projects Explain point of view of banking and financing institutions and risks associated with RE and EE projects Present possible approaches / policies / incentives to increase involvement of banking and financing institutions Show examples in different developing countries

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Module learning outcomes Be able to explain the existing financing models and the reasons for their success or failure Understand which risks and elements are key for financing institutions when evaluating RE and EE projects Understand different options for policies and regulatory/support mechanisms to provide incentives for financial institutions Be able to argue which policy or regulatory approach suits best, given the national or regional situation

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Introduction RE and EE projects have a rather poor reputation within the financing community because they are viewed as higher risk investments: –Political risk –Technology risk –Market risk

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 The Financier’s Perspective Risks: –Risk assessment and risk control –Each of the key risks involved allocated and priced Returns: –Calculate return on investment =>Risk / Return profile

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Types of Financing Debt –Bond or loan + interest to be paid back –Commercial and development banks and funds Equity –Capital in return of share/ownership –Higher risk investment –Venture capital, institutional investors

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Types of Financing (2) Grants –“Gift”, no repayment, specific goals and conditions –Development organisations Guarantees –Covers remaining risk to attract private sector –Development banks, MIGA

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Financing Models Government-led: –Government manages and coordinates funding Ex. Rural electrification (solar) in Mexico, Chile and (hydro) in China Market-based –Consumer Finance –Leasing –Fee-for-Service (ESCO) Ex. Sri Lanka, Honduras, South Africa (RE), China (EE)

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Existing Policies and Regulations Direct: Fiscal measures and Subsidies Market based: Feed-in/Quota systems/Clean Development Mechanism Audits and Feasibility studies Institutional Finance, ex. IREDA in India

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Existing Policies and Regulations (2) New funds and initiatives from development Banks: –Energy Efficiency Initiative / RE Investment Fund – Asian Development Bank –Sustainable Energy Initiative – EBRD –African Development Bank –IFC

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Design Aspects to Attract Investments Institutionalise clean energy policy: –Adopt laws, decrees and regulations –Appoint dedicated agency to implement policy initiatives Decrease investment costs: –Cf. subsidies/tax breaks/Feed-in and Quota systems/Clean Development Mechanism Decrease investor's risk: –Provide guarantees –Investors to develop risk assessing tools tailored to specific nature of RE and EE projects

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Design Aspects to Attract Investments (2) Increase investor's confidence: –Include long term targets and incentives in legal framework Increase awareness among key stakeholders: –Bankers / TSOs / local agencies Decrease transaction costs: –Tools to be developed cf. EEI-ADB and Programmatic CDM

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 List of Funding Resources International multilateral funding –Ex. World Bank, GEF, IFC Regional Development Banks –Ex. ADB, AfDB, EBRD Bilateral Agencies –Ex. DfID (UK), GTZ (Germany), US AID

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 List of Funding Resources (2) Government Finance Private Funds –Ex. Commercial banks / Ethical banks / Micro Finance Banks Private Foundations and Charities –Ex. Shell Foundation – BreathEasy Kenya

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Examples Rural Electrification SHS: –Kenya –Morocco –Sri Lanka Bagasse Cogeneration in Asia EE Investments in China's state owned energy-intensive industries

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 CONCLUSIONS Financiers` perception in RE/EE investment based on risks and returns Range of funding options and models available Clean Energy Policies should focus on: –Decrease investment costs for investors/project developers – several instruments available –Decrease risks – by governments (guarantees) and investors (risk assessing tools – familiarise with RE and EE technologies) –Increase investor's confidence by adopting long-term legal framework –Decrease transaction costs

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 19 Questions/Activities “Private financiers will never be interested in RE and EE projects because they are too risky and small scale.” True or False? Discuss